BOSTON >> Responding to instability in the stock market that has shredded revenue estimates for next year, House and Senate leaders on Thursday will seek passage of a $39.15 billion budget accord for the fiscal year beginning Friday that slashes $750 million in projected revenue and $413 million in proposed spending from budget bills agreed to in April and May.
The (H 4450), reached on Wednesday by six House and Senate negotiators, preserves increases to local aid and school funding for cities and towns, as well as substance abuse programs, but leaves many agencies and programs receiving level funding or minimal increases as the page turns Thursday night from fiscal 2016 to fiscal 2017.
Budget writers attempted to limit the pain across state government by identifying "efficiencies," they said, and by deferring Medicaid payments and revising estimates of how many people would seek health care services and transitional assistance in the new year.
"I'm proud that, in the midst of a tough fiscal climate, we came to agreement on a fiscally-responsible budget that minimizes cuts and protects our most vulnerable residents," House Speaker Robert DeLeo said in a statement.
Senate President Stanley Rosenberg said the budget deal underscored the need for the state to raise more revenue.
"This budget is a reflection of fiscal realities we cannot afford to ignore," Rosenberg said in a statement. "Relying on unpredictable, one-time sources of revenue has forced us to make painful cuts. We must increase efficiencies, make sure corporate tax breaks lead to economic growth, and begin to implement fiscally responsible ways to raise revenue so we can make prudent investments to grow the economy. We cannot cut our way to prosperity."
The deal scrapped numerous outside policy sections, many of which had been endorsed by the Senate but were criticized by Gov. Charlie Baker and DeLeo for being unrelated to the state budget.
While proposals to restrict gas pipeline siting, ban plastic bags and put a moratorium on the resettlement of rattlesnakes on an island in the Quabbin Reservoir were rejected, a deal was reached to bring Massachusetts into compliance with the federal Real ID Act, enabling the state to prepare to issue new licenses that will allow residents to fly domestically and enter federal buildings without a passport.
The compromise plan would increase Chapter 70 school aid by $116 million and unrestricted local aid by $42 million, House and Senate Ways and Means chairs Rep. Brian Dempsey and Sen. Karen Spilka said. The leaders also said funding for higher education would increase on average by 1 percent, including a 1.4 percent increase for the University of Massachusetts that will factor into calculations that must be run to set tuition and fee levels.
Dempsey and Spilka said the compromise cuts $260 million in direct spending from the roughly $39.5 billion spending plans approved by the House and Senate in April and May, including $142 million from Medicaid by deferring some payments until fiscal 2018 and reducing caseload estimates in public assistance and health insurance programs.
Spilka said information technology accounts and the state's sheriffs would also absorb some of the cuts made to balance the spending plan.
The budget bill, which will be put before House and Senate lawmakers Thursday for passage, also cancels a proposed $200 million deposit in the state's reserves due to lower than anticipated capital gains taxes, which have taken a hit from the volatility in the stock market.
Dempsey said the budget conferees, with the help of the Baker administration, identified $100 million in savings through "procurement efficiencies," and are no longer assuming a reduction in the income tax rate from 5.1 percent to 5.05 percent in January, freeing up $80 million in taxes for spending. However, the economic benchmarks required to trigger an income tax reduction could still be reached, leaving a vulnerability in the budget that would have to be addressed mid-year.
"I think that this action on the part of the House and Senate, the conferees that have worked very, very hard over the last several weeks, shows that we are taking strong action that will certainly deal with the challenges and adjustments that we see with respect to revenue," Dempsey said.
As a result of the lower anticipated revenues in fiscal 2017, automatic transfers to the School Building Authority and the MBTA from sales taxes will occur at lower levels, reducing the amount delivered to each entity by about $30 million, Dempsey said.
No other cuts have been proposed for the MBTA's operating budget, and negotiators also agreed to a cap on fare increases for riders of public transit to 7 percent every two years. With MBTA fares slated to rise Friday on average by 9 percent, the Senate tried to revisit the fare issue in the budget and compromised on a cap between the 5 percent sought by leaders in that branch and the 10 percent allowed under current law.
Estimates of tax revenues needed to support next year's proposed $39.5 billion budget proposals were sharply lowered in the weeks since conferees first sat down this month to begin working on a budget accord, with Gov. Baker indicating on Monday that the shortfall could climb as high as $950 million. Elected officials said the stock market performance in 2015 is negatively affecting tax revenues now.
"Nobody in the state, it's clear, was able to predict the volatility in the stock market that's led to our revenue shortfall," Spilka said, expressing pride in the fact that the budget makes "modest investments, but still investments."
Dempsey said the vote in Great Britain last week to leave the European Union also remains a "real unknown" after the referendum roiled the global markets in the days after the vote.
After initially projecting revenues to climb in fiscal 2017 by 4.3 percent, the compromise budget has lowered expectations to 2.7 percent revenue growth, or $677 million. Spending, under the plan, would climb by $650.3 million, or 1.7 percent, over estimated fiscal 2016 levels.
Spilka ticked through some of the increases in spending, including $2 million for regional school transportation, $12.5 million for early education salaries, a $100,000 anti-poverty mentorship pilot program and $20.6 million for mental health services.
The budget, if signed by Gov. Baker, would also increase spending by $23.6 million to $139.2 million on programs designed to fight the state's opioid abuse epidemic, including supports for 125 new residential treatment beds.
Rosenberg has repeatedly made clear his belief that the state needs to finds ways to increase its revenue streams to support the government programming and capital infrastructure improvements that the public expects.
His calls for new taxes to be debated, however, have been thwarted by a resistance from both the governor and Speaker DeLeo to ask taxpayers for more money, leaving him to pin his hopes on proposed constitutional amendment that won't get decided until 2018 to tax income over $1 million at a higher rate.
If the House and Senate pass the compromise budget on Thursday, Baker will have 10 days to review bill and veto any spending he disapproves, or return sections with amendments. Dempsey said he spoke to Baker on Wednesday, and the governor expressed his appreciation that a deal was struck ahead of the start of the new fiscal year and that talks didn't drag later into the summer.
Massachusetts Budget and Policy Center President Noah Berger seemed to share Rosenberg's feelings about the budget, echoing his call for increased revenues.
"This budget represents another year of just barely getting by without any clear path to addressing the big challenges our Commonwealth faces, such as rebuilding our transportation infrastructure, making college affordable, and expanding access to high-quality education for all of our children. Our Commonwealth could get those big things done, but it would likely require reforming our tax system so that our highest income residents would no longer pay a smaller share of their income in state and local taxes than middle income residents pay," Berger said.